9/26/2010

Productivity, Profitability, Capital Structure

When all three are moving in the right direction a higher ROE will soon follow. The origin of this strategic profit formula was from the DuPont Company, hence the name the DuPont formula.


For this weekend 09/26/10 I used the cash conversion cycle as a measure of productivity, return on invested capital for profitability, and share count and debt to measure the soundness of the capital structure.

ROE = (Net Profit/Sales) x (Sales/Assets) x (Assets/Equity)

Strategic intangibles = Market Place (market share, customer loyalty, brand strength, supply chain) + Management (competence , candor, independence)

The measure of the strategic intangibles can be benchmarked by the results of the strategic financials.

Strategic Financials = profit margins, expenses, asset productivity, cash flow, debt and liquidity

ROE Components = (Profit/Sales) ( Sales/Assets)(Assets/Equity) = ROE

I was looking for companies moving in the right direction but potentially not built into the stock price.

The filter started with the universe of companies below 100 million in market value. To this I added only companies reporting quarterly year over year increase in revenue.

After this restrictive pool of stocks I only selected companies improving productivity in the belief that it has yet to be recognized by the market. My productivity measure for this post was the cash conversion cycle. Only improving TTM compared to the average prior 3 years (productivity measure/cash conversion cycle) were selected.

Increasing profitability by selecting companies with a TTM ROIC greater than the average 2007 to 2009.

Capital Structure: Changes in shares outstanding was restricted to only companies reducing or stablizing  the TTM share count versus the prior past 3 years. Debt was also reviewed.



I will mention a few interesting financial data points for the ideas selected;

PESI: Perma-Fix Environmental Service

Industry = Waste Management

Market Cap = 90 million

18.60% YOY Quarterly revenue increase, 2009 33.34%, 2008 = 39.56%

Improving P/S ratio ; TTM P/S = .80 versus the 1.20 for 2009, .90 for 2008, 2.40 for 2007, 1.30 for 2006

TTM ROIC= 12.12, 2009 = 11.75, 2008 = 2.47

Institutional value holders = 10.49%,

RUTABAGA CAPITAL MANAGEMENT LLC/MA = 7.01%

GRUBER & MCBAINE CAPITAL MANAGEMENT LLC = 4.11%

Other ideas that need more work but may be worth the effort;

Click to view

http://www.shadowstock.com/ss_092610.html

2 comments:

Anonymous said...

What happened with TIXC today???

ShadowStock said...

TIXC has voluntarily delisted their stock. It’s not the end of the world but take this news coupled with their recent horrible results and most investors sold today.

They are expected to report improved results this coming quarter but that could fall short. On the positive side they will save 1 million a year in reporting costs by delisting and the current sales, cash and debt make the stocks look reasonable.I wish there was better news.

Good luck
John